Economic Vulnerability and Political Responses to International Pressure: Liechtenstein, Switzerland and the Struggle for Banking Secrecy

Abstract

After doggedly opposing any increase in exchange of information on tax matters for several decades, both Liechtenstein and Switzerland have made significant concessions over recent years. However, the two countries have reacted rather differently to international pressure: while Liechtenstein has adopted a more proactive approach, offering far‐reaching bilateral deals to several major economies, Switzerland has been slow to react to international pressure, despite calls for a more proactive strategy by its financial services industry. We suggest that these differences have a range of causes; in Liechtenstein, in particular, the pressure was more evenly distributed, thus allowing the financial services industry to close ranks and use its privileged access to the government to shape the government's response decisively. By contrast, there was internal division in the Swiss financial services industry and it was soon on the back foot in public debate, eventually losing control over the issue.

The redistributive impact of hypocrisy in international taxation

“…At the international level, they have staunchly defended such provisions against initiatives toward more financial transparency. Switzerland, Liechtenstein, and others, for instance, long refused to comply with Organisation for Economic Co‐operation and Development (OECD) standards for the exchange of account information upon request (Eggenberger & Emmenegger ). Likewise, Austria and Luxembourg did not participate in the automatic exchange of information (AEI) regarding interest payments to non‐residents among European Union (EU) members (Rixen & Schwarz ).…”

Capital Taxation and International Cooperation

“…At the time of writing, all traditional secrecy jurisdictions had begun to regularly report the account balances and capital income of non-residents to their respective home countries (Ahrens and Bothner 2020). To this end, the governments of countries like Austria, Luxembourg, or Switzerland had to overcome considerable domestic opposition to the dismantling of banking secrecy provisions that had provided their private banking sectors with a crucial competitive advantage and had become essential elements of national identity (Eggenberger and Emmenegger 2015;Hakelberg 2015). Assessments of the BEPS project are less euphoric.…”